SEC Whistleblower/Financial Fraud Whistleblowers

The SEC’s Whistleblower Program was created by Congress to provide monetary incentives for individuals to report possible violations of the federal securities laws to the SEC. Whistleblowers may submit information directly to the SEC either online or by delivering completed Form-TCR to the SEC. Alternatively, information may be submitted anonymously through an attorney. While whistleblower laws prohibit (and provide legal remedies for) retaliation by the employer, the decision to come forward is not one to be taken lightly. An experienced attorney can provide valuable legal and practical counsel.

Typically, whistleblowers are, but are not required to be, employees of the corporation where the wrongdoing took place or is taking place. In general, a whistleblower who voluntarily (i.e., before any regulator asks for it) reports “original information” (i.e., information the SEC does not already have and is not generally known) is entitled to an award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC and related actions brought by other regulatory and law enforcement authorities.

As noted, the SEC Whistleblower Program prohibits retaliation by employers against employees who provide the SEC with information about possible securities violations. Employers may not discharge, demote, suspend, harass, or in any way discriminate against a whistleblower for providing information to the SEC or assisting the SEC in any investigation or proceeding based on the information submitted.

In that connection, an individual was recently awarded $930,000, to be paid by his former employer, Bank of America, for being fired in violation of the whistleblower protections. The employee blew the whistle on fraud at Countrywide Financial Corp. and led internal investigations that found “pervasive wire, mail and bank fraud involving Countrywide employees,” according to the U.S. Department of Labor. He was terminated soon after the bank acquired Countrywide in 2008. Bank of America was further ordered to reinstate the whistleblower. The $930,000 included back wages, interest, compensatory damages and attorney fees.

The SEC opened its Office of the Whistleblower on August 12, 2011. SEC Director of Enforcement Robert Khuzami said, “Early and quick law enforcement action is the key to preventing securities fraud and avoiding investor losses, and the whistleblower program gives us the tools to help achieve that goal.”

Similar whistleblower programs set up by other federal agencies have grown dramatically in popularity—and the amounts paid out—over the past two decades. CNBC recently reported that there were 43 federal whistleblower cases in 1988 resulting in $2 million in penalties and $97,000 in payments to whistleblowers, but in 2010, there were 573 cases generating $2.3 billion in penalties and paying more than $385 million to whistleblowers. Now that whistleblower rewards are available to those who expose abuses in the securities industry, those numbers are expected to go much higher.

The recent Forex fraud suits against Bank of New York Mellon confirm the value of whistleblowers. BNY Mellon was sued in separate civil lawsuits filed by the U.S. Department of Justice and the Attorney General of New York seeking damages in excess of $2 billion related to BNY’s alleged practice of fraudulently misleading and overcharging public pension funds, universities, and other clients for foreign exchange currency transactions. In essence, the complaints allege that BNY Mellon profited by giving its foreign exchange clients the worst exchange rates of the day, and even created fake trades.

The investigation into these practices began with Harry Markopolos, the fraud investigator who tried to alert the SEC to the Madoff ponzi scheme years before it imploded. Markopolos put together a group of whistleblowers to investigate and build a case based on his insight that BNY Mellon was violating securities laws. The identity of the inside whistleblower at BNY Mellon was kept secret for two years even as BNY Mellon looked for the whistleblower. The Markopolos group first filed their own lawsuits against the banks based on the whistleblowers’ information. Then several state attorneys general, believing the claims to have merit, took them over. The whistleblowers stand to receive up to 25% of any recovery.

If you have uncovered or witnessed a securities fraud or financial fraud and are interested in seeking a financial reward for reporting it to the regulators, call the lawyers at Page Perry for experienced representation at (770) 673-0047 or (877) 673-0047 (toll free).